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Last week Bitcoin continued its pattern of high realized volatility on intraday charts. On Wednesday, we finally saw BTC break $60K with conviction, after a turbulent downward spiral which began overnight on Monday. Price stabilized around $57,200 and has bounced back since; reaching all the way back up to $65,500 just this morning. Short / medium time frame technicals show a possible continuation of the upward trend, however higher time frames suggest a lack of momentum should price stop here.
Annualized basis rates have held steady over the past week, and are still in the 10%-13% range exhibiting a downward sloping term structure. ETH rates are noticeably lower, roughly 1%-2%, indicating demand for leverage is stronger in BTC markets. Alt-coin funding rates on perpetual contracts also compressed with some rates flipping negative, suggesting that the market may be in a defensive state.
Vols continue to drop in tandem with spot prices, with mid and late term vols dropping about 2 points. Both BTC and ETH continue to show quite a steep rising term structure, incentivizing traders in derivatives markets to focus more on calendar / diagonal spreads. BTC short-dated vols now sit around 56%, steadily rising to 66% as one looks at the back-end of the curve (62% up to 71% for ETH). Volatility skew is still currently slightly positive for both BTC and ETH, although more pronounced for BTC. Term structure of skew is much steeper for ETH, explaining the major volume concentrations in calendar and diagonal spreads seen over the last week. As skew / forward prices came down significantly, we expect to see much more put-based activity in the coming week.
Combo spread volumes are back up, indicating heightened activity in the derivatives market. For BTC we can see vertical spreads dominating activity, while for ETH, time-based spreads are dominant. ETH options traders are likely taking advantage of the steep term structure of vol (and skew), and selling further-dated vol to fund closer-dated vol plays. In BTC markets, traders likely bought cheap upside via call spreads during last week’s dip. Seeing as short calls dominate BTC’s option’s volume last week, many traders likely sold into this recent rally, taking advantage of momentarily rising vols in tandem with price (positive spot-vol correlation).
BTC Combo Spread Volumes:
ETH Combo Spread Volumes:
***Data and insights as of May 6th, 2024 12:00:00 UTC
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